Varun Beverages (NSE:VBL) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Varun Beverages Limited earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then 0 on your touch tone. Please note that this conference is being recorded. I now hand the conference over to mister Anupujari from CDR India. Thank you, and over to you, Mr. Puchar. Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages' Q3 CY twenty twenty six earnings conference call. We have with us Mr. Varun Jayapurja, Executive Vice Chairman and Hold Time Director and Mr. Raj Gandhi, President and Hold Time Director of the company.

0:51 Mr. Ravi Jayapurja, Chairman of the company has had to excuse himself on today's call due to personal reasons. We will begin the call with opening remarks from the management, following which we'll have the forum open for a question and answer session. Before we proceed, I'd like to point out that some statements made in today's call may be forward looking in nature and a disclaimer to this effect has been included in the results presentation shared with you earlier. I will now request Mr. Varun Jayapodia to make his opening remarks. Good afternoon, everyone, and thank you for joining us on our earnings conference call. I hope you've had a good chance to review our results presentation for the third quarter and nine months ended 09/30/2026.

1:37 We are pleased to report a strong performance in the third quarter of CY twenty twenty six. Consolidated sales volume revenue grew 28.7% with a volume growth of 22.5% in India and 39.9% in International Markets. Revenue from operations increased by 33.2% year on year to million, while EBITDA grew 25.1% to INR 14,267,100,000. Higher packaging costs weighed on margins during the quarter, although improved realizations and operating leverage from strong volume growth helped partially offset these pressures.

2:23 In India, we continue to witness healthy volume growth during the quarter, extending the positive trend seen since May. This performance was supported by our extensive distribution network, expanded manufacturing capacities and ongoing investments in chilling infrastructure. We also saw improved realization supported by growth in higher value categories such as dairy and the introduction of premium offerings including Adrush and the EverWest mixers range. Our international business continued to make strong progress during the quarter with Africa remaining a key continent for expansion. With effect from 08/01/2026, the merger of Twiza with Bevco has been completed and we expect to unlock significant operational synergies in the coming quarters.

3:14 During the quarter, we've also stated beverage operations in Kenya and introduced two new beverage brands, Bolt Up and Extreme Fit, marking another step towards strengthening our footprint in the fast growing African region. We also entered into an exclusive distribution agreement with Mondelez in Zimbabwe, further broadening our product offering in the market. We are also taking major steps towards diversifying our business into adjacent categories. The incorporation of Kiva Spirits and Company Limited marks an important step in exploring opportunities in the ready to drink beverages, alcoholic beverages and allied products. Our approach will remain focused on pursuing opportunities that leverage our execution capabilities and offer attractive long term growth potential.

4:05 In line with our dividend policy, the Board of Directors have approved an interim dividend of 25% of the face value, 50 per share, resulting in total cash outflow of $1,691,000,000. Looking ahead, our focus will remain on driving growth across our existing markets supported by investments we've already made over the recent years. Alongside this, we will selectively pursue opportunities to broaden our business while maintaining a clear emphasis on profitability and long term value creation. I would now like to invite Mr. Gandhi to share the key highlights of our operational and financial performance. Thank you. Thank you, Mr. Vice Chairman.

4:52 Good afternoon and have a warm welcome to everyone joining us today. Let me take you through the financial and operational performance of the third quarter and nine months ended 09/30/2026. Revenue from operations net of excise duty and GST increased by 33.2% year on year to the level of INR 66,076 million in quarter three twenty twenty six. For nine months CY 2026, revenue grew up by 23.3% to the level of 218,146 million. Growth during the quarter was primarily driven by a 28.7% increase in consolidated sales volume to the level of 354,400,000 cases in India. Volume grew by a strong 22.5% during the quarter, while international territories recorded robust growth of 39.9%.

5:49 Consolidated net realization per case for beverages improved by 2.2% year on year, supported by a 0.5% increase in India on account of growth in high value categories and further launch of premium categories like airbrush, Everwise mixers range, calibrated discounting and efficient price pack architecture. In international markets, realization purchase improved on account of improved realization in South Africa and currency impact. In terms of volume mix, carbonated soft drinks accounted for 73.3%, juice based drinks to the level of 0.8% and packaged drinking water for 21.9% of total sales volume during the quarter.

6:36 Coming to margins. Gross margin moderated by three thirty four basis points year on year to 53.1% in Q3 calendar year twenty twenty six, primarily due to higher packaging material costs, including preformed shrink film, closures, cans arising from geopolitical disruptions. However, packaging cost contributed approximately 300 basis points of pressure on gross margin. In addition, sales of nonbeverage products such as preforms and caps in India increased by approximately 104% during the quarter. Given their higher COGS, these products had an impact of approximately 100 basis points on gross margin in India. The impact of around a 16% increase in sugar prices was largely offset by higher proportion of low sugar and no sugar products in India, with their share increasing from 44 levels in the core spending Q3 of twenty twenty five to the level of 88% in the Q3 of the twenty twenty six in India, almost double.

7:46 This is after accounting for the sharing of sugar reduction benefits with PepsiCo through concentrate cost as part of the transition to a low level low sugar portfolio. EBITDA increased by 25.1% year on year to the level of INR 14,267 million in Q3 of twenty twenty six, with EBITDA margin at 21.6%. The margin moderated only by 140 basis point in spite of higher material costs year on year, primarily due to the contraction in gross margin, primarily offset by operating leverage from robust volume growth across India and international territories.

8:32 Importantly, despite the supply U. Dollar in the dollar S. Dollar dollar percent in year on year to the level of 8,306 million in Q3 of calendar year twenty twenty six compared with the INR 7,315 million in the corresponding quarter last year. Depreciation and by 34.553.5%, respectively, primarily on account of acquisition of Visa in South Africa and the associated debt funding. Other income declined by 18.8%, reflecting relatively stable currency movements during the quarter.

9:24 For nine months calendar year 2026, EBITDA increased by 19.9% to the level of INR 52,746 million, while that grew up by 15.5% to 32,023 million dollars Looking ahead, we are encouraged by the strong volume growth delivered across India international markets. Our endeavor will be to sustain healthy growth over the longer term supported by effective utilization of our expanded capacities and market infrastructures. At the same time, we will remain focused on managing input costs and improving operating efficiencies to support profitability as we scale our operations. On that note, I will come to an end of our opening remarks and would like to now ask the moderator to open the forum for any questions or suggestions that you may have. Thank you.

10:23 Thank you very much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask questions may please press star and 1 on your touch tone phone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abhish Roy from Nuvama. Congrats on strong volume growth in India and working also. My first question is on the gross margins.

11:08 What will be the outlook for next quarter, if possible, even the March quarter? And coming specifically to this quarter, earlier the information sharing was that sugar that changes happened. Maybe no sugar usage is there in terms of the portfolio. Plus in terms of the packaging, lot of the buying has been done for the September quarter. So wanted to understand where things came versus that initial comment. And on your specific comment that non beverage has grown very sharply, preforms, caps, etcetera. So what is the reason for that? And could you bifurcate how much is the packaging increase, sugar increase and this non beverage increase? That can give us more clarity. Thank you.

11:55 Abnish, good afternoon. Abnish, as you know in the opening remarks we have clarified the food has not affected much because of the portfolio change, innovation from forty four percent to 48% low sugar or no sugar, that has been managed very well. However, with the geopolitical factors, the cost of packaging has gone up. And your comment is correct, but that was relevant for the the war started on February 28 or so. And at that time, we had stated that we are totally covered for the next quarter. And last quarter, you might have noticed there was no impact on the gross margin. But after that, all the purchases going forward, our at the revised increased enhanced prices, we did stock for much longer period than the quarter, which we could manage last quarter, but now the prices are definitely higher.

12:59 And how do see outlook? Outlook, see, this is a macro factor. Both are macro factor, food and the packaging. But in our case, in spite of that, through the innovation, we are able to manage sugar very well. And as far as material cost is concerned, cost wise may not be possible to give any comment. However, how we will mitigate the way we out of the 4% or 3%, we have mitigated more than half of this by reduction in cost. I think if your question is directed towards that, we will definitely be able to answer that and how to preserve our margins, that will be a little pointed and easier for us. I think, Avnish, see, looking at the geopolitical situation, nobody really knows, right, when this war is going to end and what is going to happen with the fuel prices coming down, perhaps only Mr.

13:57 Trump, which has the answer. Now the question is that the industry, of course, for two quarters has been feeling the pain of the cost going up because of the raw material cost is increasing. I think there is enough chatter within the Beverages Association, which is all the players who were there in terms of if the prices do remain high, then what other measures they will take because over two quarters, we usually do not act so fast on price pack architecture. But there is conversation if the pricing stays high, do they downsize certain packs, do they take certain pricing up or will there be a trade margin reduction? So we'll have to wait and see what happens on that. Vinish, just to add what yes. Go ahead, please. What he was thinking.

14:44 Vinish, just to add what Mr. Varunjipuri has stated is that we have already brought 50 staying from 300 ml to two fifty. So depending upon the market condition, competitive scenario, etcetera, the other portfolio also from time to time will be reviewed. So thanks. Just one quick follow-up. So this is extreme geopolitical situation, which comes, say, once in ten years and twenty years. And generally, Pepsi is known to have discussion on how they can help here, especially given the new Polar player has in house, obviously, one of the largest pet supply. So they can absorb this cost while you and the other legacy player will have to face that. So any talks with Pepsi to handle in this scenario?

15:36 I think it's too early. That's what I said right now. We're all figuring out what price pack can we do. So of course, cost is increasing not just for us. I'm sure for PepsiCo as well, back end cost must be increasing. Hence, for the industry, the cost is increasing. So we're going to wait and watch. I think if you look at this quarter, we've done fairly very well in terms of volume and negating the 400 basis points of cost increase. Now going forward, if we believe that we're not going be able to negate it, then of course, the whole industry will take some action on price pack for sure to negate it. Sure. Second and last question on this Mondelez relationship in Africa, in Zimbabwe. Any numbers you can share from a longer term three to five years, what can be the opportunity here? And do you see more markets getting added, adjacent markets in Africa from Mondelez?

16:25 See, is very nascent, right? Mondelez is one of the best brands you can work with, right? And we're very fortunate to partner up with them. They already have an existing business of about $11,000,000 in Zimbabwe. Of course, the local partners they were working with, I'm sure he was not able to harness the full potential of the market. Hence, we're partnering up with them. So I think once we are in the market, since we do understand Zimbabwe very, very well, it was a greenfield project for us a few years back. And of course, we've got a very high market share there and the volumes are growing. So I think let us get into it. Let us get our teeth into it. We're getting the whole portfolio for distribution. And we're quite hopeful once we understand what the whole market is and once we start the distribution properly, we can come back to you and give you some concrete answers on it. Sure. Thank you. That's all from my side.

17:12 Thank you. Thank you, Avnish. Thank you. The next question is from the line of Vivek M. From Jefferies. Please go ahead. Hi, good afternoon. Couple of questions. First is on the competition side. We have had one of the food companies, which did mention that the competition seems to be abating right now. What is your what are your thoughts on the same issue, please? Competing would be? Yes. So sorry, what is your question on the competition exactly? So what I'm saying is like Tata Consumer on their conference call mentioned that were they sounded far more confident on the, let's say, the market structure and how things are evolving. What is your view on the competition in general?

18:05 Your latest thoughts, please? No. I think we had subdued quarters due to the seasonality and what we had mentioned. If you see our quarter one as well, we had performed very well. High double digit growth is what we had. And then quarter two, due to seasonality, obviously, had gone down, which we had clarified earlier. Now again, the weather has been very good. The price pack is holding up in the market. The growth are back. There's no reason why we believe that the growth should not be coming going forward. And we've mentioned many times that the per caps in India are still very, very low right now compared to even our neighboring countries and the amount of expansion of growth, which is there even for us and our competition today, we all can grow. Hence, if you see today, even if we have grown, I'm sure all our competitors are growing, even Tata consumer has given very good numbers is what I hear in terms of their beverage portfolio.

18:57 So there is no reason as to why we should all not keep growing. Got it. Got it. The other thing, Varun, is in the so when I look at your India unit realizations, in the last six, seven quarters, there has been a downward pressure. And we saw that changing in early part of this year, and then we have seen further buildup from there. I know the raw material trends are also or the trend has been difficult, which is why you explained about the price and the mix and everything. But does that also signal that, like December last year, the unit realization was at the bottom, the worst from a competition standpoint, does that also signal from this realization unit realization in India trend?

19:47 VB, instead of giving a forward statement, I draw your attention. Look at this quarter, that trend is already reversed and there is increase in realization per case. I think that's a good indication and you can build on that. See, I think, Vivek, one more thing I'll add. If you remove the raw material pressure, there's so much operational efficiency what we've built in and there's so much operational leverage because of growth what we are getting. And even if you see a nine month trend, we're trailing at 1716%, 17% growth now largely, right, which is a good double digit growth. And I think there's a lot of initiatives what we have done internally as well. It could be the mid cal saving what we've brought in, bigger plant operation is what we brought in, a lot of distributor consolidation is what we've done. So these are routine things what we keep doing, which gives us huge operational flexibility.

20:38 Now we believe going forward, these are routines here which will keep happening. So if the raw material element goes out and starts stabilizing, I think there should be no concerns when it comes to our margins. Got it. Got it. And the second question is on the international business. Obviously, the volume growth, both organically and reported basis, has been very good. Given that it's a geography or the cluster of geographies, which we do not fully understand, can we just about your outlook from a next few quarter perspective on the international side? And anything to call out for any of the geography? See, I think we're doing very well in Africa. I mean, most of the places, we are out of capacity. We are investing in CapEx in Morocco now because we don't have enough capacity there. We're investing in Zimbabwe since we don't have capacity. We're putting some more...

21:31 DRC. Yes. So in DRC, we're putting a lineup as well. So I think, Yanan, we have sold out in most of the places. So I think the outlook is very, very positive. If there's enough and more room to grow in Africa, it's again a very, very nascent market. And I think if you see the last four, six, eight quarters, there's tremendous growth is what we are seeing, and that's continuing. Got it. Got it. And anything on the currency side of things because that's one thing on so there hasn't I mean, has yielded a bit, but is that any of the markets anybody on that front? Not large impact. There is no worry, Vivek. The only thing is last year, there were bumpers currently had gone up.

22:17 Local currencies had gone up with a dollar. This year, this has stabilized. And there is a lot of commodities, minerals, metals, those natural resources, which are in demand and those currencies are holding on. In fact, the South African currency has become costier since we acquired those, back in Got China it. And Mr. Gandhi, last thing, which is in the earlier quarter, had mentioned about there was some impact of regulatory issues on the energy drink in, I think, June as well as if I recall correctly, you mentioned for July. How things are on the energy drink side in this quarter? So the energy is coming back.

23:03 I'm sure you're aware of the whole issue, which will happen which happened with the society that they had banned the use of the word energy because the registration for most energy brands in India was not was done under carbonated beverages, not under energy as a category because energy as a category did not exist in India. So the ruling, what they had was you can't use energy. Of course, that created some turmoil in the market amongst the retailers and the distributors. But I think that's for everybody, and we see STNG holding a very, very high market share in the energy segment. So STNG is coming back, yes. STNG is coming back. The volumes are looking promising, and it is building back. Got it. And any would you be able to quantify where it is today versus if 100 is the baseline?

23:49 Because the growth that we have seen, your commentary or comments suggest that it is still not up to the mark. So is that a fair understanding, which means the rest of the portfolio growth has been faster than what the headline numbers suggest then? No, no, of course, that has to be there, right? Because in the middle, people won't show up this one stock up energy or not from every distributor, not just us, competitor products and retailers are not sure if they want to stock up energy. So let's assume the negativity was 25%. Now we can say we are slightly positive. So I think month on month on a quarter, we're moving towards a positive range versus where we were at least. So that puts in the right context for you. Yes, this helps. Thank you very much. Wishing you and your team all the very best. Thank you. Thank you, VB.

24:35 Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all the participants in the conference, kindly limit yourself to two per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Adip Visuman from CLSA. Please go ahead. Good afternoon. So two questions for me. Firstly, can you give us a sense of the volumes for volume growth that you're seeing for the non carbonated business? And second, you indicated that you've taken a price increase or volume cut for STNG. When was this taken? And broadly, the price increase that we're seeing in the portfolio as well for India, From a timing perspective, should we expect that to play out fully in the December quarter? Sorry, I'm not clear. When you say we've begun a price increase in the portfolio, means what exactly?

25:35 So we've seen the net realizations improve in India as well as you indicated that for STING, you've reduced the damage, right, or the volume. Yes. When was this taken so we can estimate better for the fourth quarter? Yes. So there's no pricing which we've taken on the CSG portfolio. That's come through operational efficiency, like I had mentioned, and the consolidation of distributors and bigger plant productions, more operational efficiency, mid cash sugar saving, some saving in trade spend we did. So there's no pricing on the CSE portfolio or there's no change in the fact side what we've done this quarter. On STING, the downside what we did from 300 to two fifty, I'll have to get you the exact date. I think it was May or June, around about that time.

26:22 Last sometime. Within the last quarter. Within the last quarter, May, July, maybe we'll have to get back, I think I'm not sure. Aditya will come back exact number, but from the top of memory, it's sometime in the last quarter only. And the trade spend, these are the two contributors, which rationalization of trade spend, these has contributed to the much better realization. Yes, because we had stock in the market, Distributors stocks, plant stocks, whether they got used up. Yes, we give you the exact numbers, yes, on those. Very clear. Thanks. Thank you. Thank you, Adit. The next question is from the line of Devanshu Bansal from MK Global. Varun, my question is to better understand how unorganized industry is playing out, right? So while the margin is a hit for us, but it is a bigger hit for the smaller unorganized players.

27:29 So we have preserved our magic price points. So wanted to check if this can lead to better growth for us in the coming quarter of next year. So any views if you could share? See, the example I give everybody is if you go to the Southern markets, right, the industry mix in the Southern markets is almost 50% of B brands. Whereas if you come to the Northern markets, it's only probably 15%, 18%. But if you go there, I mean, as per us, we are growing, they are growing, we've been growing. So there's a different market and different consumer consuming our price points versus the 10 plus price points. Now of course, the margin pressures are high. Our water growths are better because water is where the most amount of pressure is for B brand and local players due to the increase in availability and increase in raw material cost.

28:20 So I think I'm sure they're growing. I don't have an exact number, but and we're looking at a good double digit growth in terms of what we've delivered. So my question was more from our growth perspective. So can this turbulent period lead to better growth for us? Obviously, because we are not changing our price points, so can we grow faster versus what we were expecting earlier? See, my only question is when they're selling full sugar at INR 10, I'm not sure how VBLANs are able to sell. So I have no idea how they are running their business or what they're doing. I cannot be able to answer on that. We know that our growth are coming 20% plus, which we're very happy about. And we're hoping we can deliver better numbers, yes.

29:08 No. Fair enough. Thank you so much. And secondly, sir, is ballpark 10 to 15% of your sales. Right? So we have indicated that Sorry. Your your your voice is breaking. Could you repeat that? So I'm saying PET is ballpark 10 to 15% of your sales. We have indicated a 300 basis points margin impact, which says the raw material increase is only 20, 30%. Right? So... But if you see crude prices, are up, like, 50 odd percent. So wanted to check if this entire crude increase is baked in the current P and L or we may see some more sort of impact as we go down the lane? The 100% crude price is already built in because all these fresh stocks are being consumed.

29:59 And the prices of course when we are with time or the thing which the purchases which help us and also our we had if you remember, we had invested in ARPET. Backward integration. And ARPET as a backward integration in house, ARPET supplies, which I think about exact number, I'll let you know, around 30% or more is ARPAT, which is much cheaper than the Virgin market. And that has helped us to keep this pricing under control. And yes, we have the cost advantage. And if flowed back in the market, definitely, it can also help in increasing the share also that math wise works better. But as Varun said, we are happy with 20 plus percentage.

30:55 And any upside to that comes, we will share with We welcome it happily. Yes. No, that's really encouraging to hear. Thanks for taking my questions. All the best. Thank you. Thank you. The next question is from the line of Anand Shah from Axis Capital. Please go ahead. Yeah. Hi, team. Just a couple of questions. Yeah. Firstly, I mean, anything that you can share on this expansion on existing categories and especially Kiva? I mean, it's early days, but what kind of capital deployment you're looking at and what kind of plans? Yes. So very, very early days. I think Alcobare is an interesting space to get into, especially RTDs, the way they're growing in India. And I think Africa, there's a huge scope to grow them. And RTDs, if you see, they're growing at about 13% to 15%.

31:45 So we're looking to see where can we partner up and get into RTDs. That's the first thing. Secondly, even global brands like Pepsi PepsiCo, Coke, all the other guys, they have entered RTD in The U. S, in U. K. And Canada with their core brands, which is Pepsi, Mountain Dew, 7UP because that's what the younger generation is drinking now. So I think our plans are to enter our RTD right now. That's the first thing. We're also looking, which we are in talks with right now with a lot of global players to partner up and bring to India. See, our idea in alcohol is largely going to be, if we do the whole portfolio, we would like to play the prestige plus. So we're not looking at margin dilutive portfolios. If we can maintain higher margins, work with international brands, get the right brands and premiumize the portfolio.

32:35 So it's still a lot of things work in play. And hopefully, in the next call we have, we'll be able to give you more clarity. Got it. Got it. And here, you will be open to inorganic as well? Of course, of course. Yes, got it. Got it. And lastly, I mean, you did call out a little bit of impact on staying in the interim and now it's coming back. I mean, so while you have some volume impact, it would have also had realization impact, right? I mean, given its higher realizations versus the other portfolio. Nullified as well because we had a 300 ml earlier since COGS have gone up, and we did downsize to two fifty. So there has been obviously some negation of the raw material impact when we did downsize.

33:22 Got it. Got it. And beyond seeing any other price spike architecture changes you have done? I mean like from 300 to two fifty ml? Anything that you want to No, not yet. Not as yet. I mean, this year, I think, which was very important for us was to just maintain and make sure that we get into the high double digit growth, right? And a lot of pack price intervention, which we had done was looking at how dynamic the market was. So we wanted stability. But now I think the earlier question, I think Vivek of Nish has asked that how does it look going forward with all the raw material pressures. So we're going to see what the industry does here, and it's a rapidly fast moving industry. It's not like it was earlier, and we're on our toes as well. And our job is to make sure we can maintain our margin as best as we can and offset it as much as we can. And I think we've done a good job this quarter. And hopefully, going forward, we'll plan in terms of how the industry moves.

34:20 Got it. Fairly clear. And just very last, anything you want to call out on October as well? I mean, you are seeing similar momentum sort of continue. Quarter is still in progress, Anand. I think we should wait. Okay. Got it. Fairly good. Thanks. Thanks. Thanks, Arun. Thank you. Thank you. The next question is from the line of Arnav Mitra from Goldman Sachs. Please go ahead. Yes. Hi. Thanks for the opportunity. My first question was on the Africa business. If you could just let us know the constant currency growth and how much was the currency benefit on the top line? And a related question is that as you go into the season in Africa, which is December quarter, March quarter, given the capacity situation, do you think the volume growth can taper off from these very high levels? Or do you think you have enough capacities to be able to sustain growth even in the season in Africa?

35:16 See, there are two questions. One is the currency. This year, we said that the currency is more stable. So there is no effect, negative or positive, if there is anything marginal and gets compensated within one country to the other. Last year, yes, we called out there was a good benefit of the currency, which we had duly accounted for. And the second question of yours is about the capacity. We are preparing ourselves fully because South Africa DRC, the season is November, December, January. And there, we are already running our plants full speed. And Morocco, the season was August, where the capacity is short. And hopefully, before the next season at all locations, we'll have enough capacity installed.

36:09 As far as South Africa is concerned, with the Twiza acquisition, we have enough capacity. And I don't think we will face this year a shortage. The only little bit gap was found in Zimbabwe, which Zambia had overcapacity and will, on a monthly basis, will be supporting Zimbabwe from this month itself. And for next year, we're anyways adding more capacity in Zimbabwe as well. Got it. Got it. My second question was on international business margins. So it seems to have held up better than the stand alone in terms of gross margin also. So one is, is it has it been easier to pass pricing there? Or is it more to do with your own initiatives on backward integration?

36:58 And therefore, will the margins be better protected there because they would also have the same inflationary pressures? See, the margin is slightly improved because Twiza has the backward integration and other places also we have started. So the improvement in margin is because of that. And rest the economies of scale also have started playing in. And in the opening remarks, as we stated, Twiza is already effective August 1 is already integrated into Bemco, so a lot of synergies there also have already started showing up. Just one quick follow-up. So the input cost pressure on PET and cans and all, they are fully reflecting in September quarter even in the international business?

37:47 In international, this is two seventy two basis points as against around 300 in India. India is looking slightly higher. Yes, but it's all been accounted for in the quarter. Yes, it's all been accounted for, yes. Got it. That's it from my side. Thanks. All the best. Thank you. Thank you. The next question is from the line of Jayad Oshi from Kotak Securities. Please go ahead. Hi. Thanks the opportunity. I have a few questions. First one on international just continuing. This year, you have managed to sort of deliver 20% plus organic volume growth every single quarter. Can this kind of momentum continue for another couple of years? Is this the new normal run rate we should think of for the international business volume growth?

38:35 In the world we live in today, who knows what's going to happen tomorrow, but we hope we'll keep delivering the numbers, which we have been delivering quarter on quarter. I think what we normally say is that if we believe that per caps in India are very less because the penetration is very low in Africa, we believe the penetration is even lower. So I think the more investment we are putting in, the more countries we are getting into. And there's an example of what my father always gave, when we entered Zimbabwe, the market the whole market was 35,000,000 cases. Now we are doing almost 75,000,000 cases after six to seven years, and our competition is doing about 35,000,000. So I think there, it really depends upon how much how many players you have, what investment you're making. And I think there's no reason why the growth should not continue. So basically, this is a structural pickup in growth and not season related or favorable weather or anything? Yes. Jay, I think I'll come back because we look at the business quarter on quarter, and I don't believe that's the right way to look at any business of our scale at least because the penetrations are so low given it's India as well. The penetrations are so low in most of our markets.

39:45 There's population growth happening in all our markets. So I think when we compare quarter one versus quarter one or quarter two versus quarter two and say it didn't go well, I think we have to look at the business at a long term consolidated basis. If you see our history over five, six years as well, every year, there's a CAGR growth of double digit, profit growth, EBITDA growth. So this is a long term business, and we're here for the next five years, ten years, fifteen years. So this is a story which is going to play out. India consumption story is going to be huge as we know. Africa is going to be huge as well. So hence, we are very bullish, and we are very bullish to keep investing in both Africa and India as well at the same time. And the same number of 20 in twenty twenty is growth in the last thirty years, we have consistently delivered. So you do have the off raw material prices going up or the weather going down or the competition doing something, but I think consistent delivery of shareholder return and profitability has been there along with volume.

40:41 So yes, we do believe and we're very bullish. Thank you. My next question is, how has been the consumer acceptance and repeat purchase for low sugar variants of Mountain Dew and Pepsi across markets? I mean across states in India? See, it's been accepted, I would say, largely 85 to 90% of the places, there is huge acceptance. Of course, certain places, they have a pallet of high sugar. There, we do have challenges, but then we don't segment into state into district and see what's happening. As long as the overall brand is growing and doing well, we're very happy with that. Okay. Third question, you mentioned that Beverage Association is considering price increases as inflation remains elevated.

41:32 So is the new entrants also a member of this association? Or it's just No, I never I know. When I said beverage association means that there still stock amongst the competition and there's talk amongst the industry that everybody is under pressure, they're figuring out what to do and how do you negate the cost. So there's no common conversation which happens in a room, but I'm just telling you this is what the general conversation is because there is margin pressure due to raw material price. Understood. And the last one is how you know, how... You know, can you... Do you have any... Can you give us some color on what is the level of AI adoption in the organization at this point of time? Do you have any efficiency or productivity targets, you know, from a medium perspective? Where do you sort of score versus other bottlers of PepsiCo globally and maybe other bottlers of Coca Cola in India your as per your assessment?

42:26 I think we've done a lot of work here in the last few years where we score, at least according to PepsiCo, we're doing a pretty good job. We cover more than 4,000,000 outlets. All of the outlets are geo lat long mapped now. All our distributors are mapped across India, all the thousands of them we have. All our route operations, route sizing, time to delivery, all of that, speed to delivery is mapped, basis the AI tool what we use, which lets us know which distributor should be serving, what sort of a outlet base and what the distance should be. Once we put all these in, that has reduced our distributor attrition in the market. We've started having larger scale distributors as well, so the distribution has become more stable.

43:11 That's one big thing what we've done. The second big thing what we've done is that we have an order management system, which we've done with eBuy now. So every single distributor of ours, we have visibility of how many SKUs is picking up, how often is it taking the trucks, how often the load sizes are going, what brands are going, what we want to push with them. So every day we get a push report. So that makes it much more easier and clearer as one controlled our visibility, which we didn't have earlier and that helps us kind of increase our range and flavor profile as well in the market. The couple of other things what we've done and which we're working on right now, we've come up with a B2B app, we call it Bandhan, because sometimes the PSR or sales guy is not there in the market, how can the retailer place an order. So we've just launched it not even six months back. And monthly, we've got $05,000,000 retailers ordering from it now. Now the next goal for us is the first goal is obviously adoption.

44:08 Once people do adopt, then we gamify it and see how do we get them booked on more on the app to give them a personalized service. So that's the other thing what we've done the big way CNC is working. Another thing which is very important for us is that we've got more than 1,000,000 coolers in the market now or we've got a large number of coolers in the market. We've got an app now which is giving us almost zero five million images every month. Now our question is that we want to know what the purity of the cooler is, how the cooler is performing. So all that data is currently coming in now. Now the question is that, of course, we're working with different companies in AI led because the amount of data which is coming out is so huge. And our first task was to clean out the data to make sure the right data is there.

44:55 So a lot of work is there, and I think a lot of it is kind of benefiting us in terms of increasing our distribution and ensuring that we have a larger range available in the market to the consumer. Thank you so much for the detail, first ones. Thank you. Next question is from the line of Latika Chukla from JPMorgan. Please go ahead. My first question was around a bit of clarifying on your comments on margins. Given that you are saying that both for the India and international business, the full cost is now reflected in the September quarter, and probably you will look for more efficiencies and hopefully pricing as well. Is it fair to assume that given the visibility that you have, the gross margins would have troughed in this quarter?

45:59 Latika, hi. Based upon the present price trends, we can broadly say yes. I hope there are no more surprises on the macro factors. But whatever situation today is there, the answer is yes. And the only upside may be there by, as we've stated, price, pack, architecture, etcetera, like in this thing we have done, how much and how fast we can roll it down to the other packs. So that is correct understanding with you. The second question I had was on price pack itself. Ahead of the upcoming season, how are you thinking about the 10 rupee price point given now, you know, the volumes in that pack have come down to one fifty ml?

46:48 Do... Would you take this as a viable opportunity to drive penetration? Or would you shy away from pushing this price point because of the margin perspective? See, Ladhika, like I had mentioned earlier that pricing, right, was never part of our larger portfolio play. I think even this quarter, our INR10 rupee price point would be a 0.2 or 0.3 percentage to our overall volume. So I don't think so we are focusing on the INR 10 crores because we believe the pricing and the offering what we have and the consumer profile, which is there right now, will still give us very, very good growth and which it has this quarter. So we're not looking to do it because even though you go down to INR 100 and INR150 crores, the price and unit economics, it just does not make sense. And we would not like to build a business which is not sustainable in the long term.

47:40 And with our current portfolio already, it could be dairy, it could be energy, it could be the CSD portfolio, we see all of them growing strong double digit. All right. And the last bit was if you could share some color on your investment plans, CapEx plans basically for, you know, CY twenty seven? And where would you see CapEx for CY twenty six, you know, landing at? And if you could also give us some breakup between India and overseas here. And also clarify if it includes any investments that you plan for the new businesses? Latikaf, as far as 26% is concerned, the CapEx is already over. Now it's only for INR27 million.

48:28 And as we mentioned, international markets, we had to add lines in South Africa, Zimbabwe, Morocco, DRC, Zambia at all these locations. And the combined CapEx for all this is under USD 100,000,000, maybe anything between USD 90,000,000 to 100,000,000 for the international markets. And as far as India is concerned, the total CapEx, including one greenfield plant at Suratpur Suratgar, Rajasthan, that VCs and one PLT line that... INR1000 crores. It's about INR1000 crores in India and about INR90 million would be international, correct? Yes, that's right.

49:17 Sure. Thank you, gentlemen. Thank you. Thank you. Thank you. The next question is from the line of Bhabia Gandhi from Bajaj Alternate Investment Management Limited. Please go ahead. Yes. Hi. Thanks for the opportunity. Just wanted to understand on the RPT side because you said currently the cost is lower. So what is the RPT mix in the total packaging as a part of the total volume, if you can provide some number on that? And structurally, second question is regarding the gross margins. Structurally, because you are getting into newer products in the intermittent period, can we expect that the gross margin could be softened in the intermittent period till you scale those brands newer product categories? So if you can throw some light on that as well.

50:05 So ARPET mix, Bhavya, has been about close to 25%, which has helped negate the overall resin costs of what we were mentioning earlier. And to your second question in terms of the new product launches, within the Beverage portfolio, we're not seeing any margin dilution in terms of what the launch is we will be doing or we have done or what we will scale up. And the rest of the business is too early to answer right now. Once we have a concrete plan, we'll come back to you. And this entire RPT piece is internally sourced or because RPT before the before the West Asia crisis used to be at a higher rate and because the RPT regulation is in place, can we expect that structurally, assuming that the war ends one day, the packaging cost will be on a higher side on a structural basis?

50:59 No. So we are obviously using a large part of it internally, but we are obviously buying some from outside. But at the moment, given the price of oil and virgin pet, it is much cheaper than virgin pet. Yes. On a longer term basis, if you can, assuming that the war is not in place because the RPT regulation is in place. So... Yes. This will definitely go up. And the next plant will be operational in, I think, one or two quarters, and this number will definitely go up, yes. Okay. Thank you so much. Please go ahead. Sorry, sorry. You wanted to No, take something? Sorry, no, no. Please go ahead. No, that's fine, fine. Thank you. Thank you. The next question is from the line of Atul Mehrab from Motilal Oswal Asset Management. Please go ahead.

51:50 Yes. Hi, good afternoon and thanks for the opportunity. So from a longer term perspective, like if we look at our history, there's been a great evolution in terms of things we have done. And even at this point in time, you are adding new categories. So from a longer term perspective, how do you guys envisage, like, what this company will look like maybe five years, ten years down the line? Thanks. See, I think the first starting point is that our core business is a beverage business, what we're already doing. That will be inherently a large, large part of the group even today, even five years, even ten years. Hence, bringing back growth in this business and our core business has been of the highest priority. And we're very happy to say this quarter, given that result and at a nine month basis period as well, the performance has been very good. Inherently, the way we are looking at it, largely, we will be an F and P company.

52:45 AlcoBev, again, is what we're trying to enter into. We believe there are synergies in terms of what we do today at a Varun Beverages level versus the AlcoBev level in terms of the end number of outlets, which is the off premise outlets is where VBL goes, would be the restaurants and bars. We do go with a complete portfolio of mixers, CSD, energy. And I think to increase the portfolio as well, if we're able to add in some AlcoBev, we go with a consolidated portfolio and we already do have relationship with most of the outlets where we go, right? So AlcoBev, it does fit into the scheme of things. Secondly, AlcoBev is a fast growing category, as mentioned earlier as well. Apart from that, we're looking at other expansions, what we can do in the Food and Beverage space. So once that is clear, we will come back to you.

53:37 Sure. Sounds good. Thank you. On the best side. If you have any ideas, please let me know. We will catch up offline. Thank you. Thank you. The next question is from the line of Harit Kapoor from Investec. Please go ahead. Yeah. Hi. Good afternoon. So just one question was on the ad and marketing spend. You did speak about rationalization of trade spends, etcetera. I just wanted to understand in the current context, where costs are high, etcetera, do the I know a large part of the ad spend doesn't sit in your book, but how does the ad market spend play out and your relation with Pepsi in terms of how does that play out in times of high inflation?

54:23 Does the ad marketing spend, which is Pepsi's piece, actually stay at normative levels? My question is from the fact that if those levels are still higher, then that's a source of competitive advantage. I just wanted to just understand how it works in periods of high inflation. I think, see, it depends how the industry is moving, right? So today, let's say, for us, if there's a trade spend, what we can rationalize by, let's say, five hypothetically, right? We're not doing it if the competition is not doing it because we've got certain price points we can't move away from. There's a INR 10 price point, which we don't play largely. There's a INR $20.50 and there's a 100 price point, right? The inherent price point with which you cannot move away from them.

55:09 The only lever you have is because the industry we play in, we give one of the highest margins compared to any other CPG group, right? We are at 16, 1718% margins in terms of MRP margins and a lot of our packs. Now I'm assuming, which we don't micromanage, even with PepsiCo, they do have a calendar full year in terms of their marketing spend and how they look at the business. And of course, I'm sure if the industry is rationalizing or the growth aren't as what they thought, I'm sure they look at their books and their P and L as well, which and they manage it themselves also. Okay. And the second bit was on early part of this year, you mentioned that you've done all this distribution in CY twenty twenty five. We didn't get the full benefit because it was a tough year.

55:55 This year, you're going to probably do kind of mid high teen kind of volume growth for the year for India, I'm talking about. I just wanted to understand, does your distribution expansion plan start to kick in again from next year? Or do you think there's still significantly in the current four plus million outlets, there's still significant amounts of scope? Do you need numeric distribution incrementally? How are you just thinking about that? No. So we're looking at both, yes. So post September is when we already started working towards our next year distribution plan. Of course, 2025 wasn't a great year, but still and hence, in 2026, the kind of investment for the distributors that made was less aggressive, I would say, because they did have the vehicles and the investment in the warehouses they had built. But now looking at 2026 and the performance we've had, again in 2027 for 2027, I would say, we're aggressively planning numeric distribution. At the same time, we're planning widget distribution also.

56:59 So in your opinion, this INR 4,000,000 plus number still has legs to move forward in terms of... 1%, 1%, 100%. We are already at about INR 4,200,000 as per our last read, which is there, and we're hoping to add a couple of 100,000 outlets every year. The next question is from the line of Anurag Behal from Philip Capital. Please go ahead. Yes. Hi. Thanks for the opportunity. One clarification, just want to understand on the gross margin side. So we had this 100 basis point impact because of sale of non beverage including preforms and gaps. So do we expect this impact to continue in next quarter as well?

57:48 And secondly, just want to understand that why we are selling it so much? Do we have some agreement just some third party to sell that? Because it it is inflationary. Wouldn't it be good to, you know, consume it internally instead of selling it higher outside? This is over and above what we use for ourselves, for the others. This is only marginal and helps us amortize part of our fixed expenses. This is an additional contribution coming to us. If we sacrifice this, that much recovery of this will not come. Okay. Is it going to or you think it's going to stay at 100 basis points or something or to ease from here? So overall... It depends. If the material is available and we capture, this will help us absolute figure going up. Percentage, it may slightly affect.

58:38 But till the time it contributes to the bottom line, I think we should continue to do it. And fourth, eighth, the escalated figures may look like up to 28 February numbers because pre war versus post war, rather maybe one or two months further because we had inventory up to June, actually. Thank you. And secondly, on this Calcas launch, I mean, where we are there? I'm just planning to do it in the second half of the year. Yes. Calculus, we're still working on the marketing plans, and we will be ready during the December, January 6 and launch the brand. And do we have any initial plan, if you could share how we're going to launch it or you're still under development?

59:29 It's pretty much under development because usually what happens is that we tie it up with our marketing calendar. So even with PepsiCo, the entire marketing calendar usually gets frozen around December. And we are looking into obviously launch some key markets across India where we have production capability and try out different regions to see what are the taste profile of the consumer and how it picks up. And then, of course, finalize the marketing calendar, and usually that kicks in around late February or March. So we still have some time. Sure. I think that's provided. Thank you so much. Thank you. And gentlemen, we'll take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Thank you, and over to you, sir.

1:00:16 Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our Investor Relations team. Thank you once again for your interest in Sport and for taking the time to join us on this call. Look forward to interacting with you soon. Thank you. Thank you, members of the management. On behalf of Varun Beverages Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your line.